When something does not work out as we had hoped, or perhaps had planned, we frequently attempt to shift responsibility to an external factor over which we have no control. This would appear to be the principal strategy adopted by the provincial government in their attempt to cool the Greater Golden Horseshoe’s (GGH) clearly overheated housing market.
Evidence of this shifting of responsibility appears in the first section of the government's recently introduced Ontario Fair Housing Plan which would apply a new 15% speculation tax on the price of dwellings purchased by folks who are not citizens or permanent residents of Canada, i.e., foreigners. Applying this tax will, in the government's view, "address unsustainable demand in the GGH and make housing more available and affordable".
Given the fact that Toronto is ranked as the fourth most liveable city on the planet by the Economist magazine, it is not surprising that the city's housing market attracts a number of affluent foreigners seeking to diversify their investment portfolios.
However, the most comprehensive study available on Foreign Ownership of Condominium Apartments in Canada's Census Metro Areas, published by Canada Mortgage and Housing Corporation (CMHC) in late 2016, revealed "that the overall proportion of units owned by foreign owners remains low".
In Toronto, foreigners owned 2.3% of all condos and just 3.9% of those completed since 2010. Moreover, according to CMHC's October 2016 Secondary Rental Market Survey, the vacancy rate for apartment condominiums in Toronto at 1% was the lowest it has been since 2009. This low vacancy rate indicates that the vast majority of foreign and domestic investors in condo apartments in the CMA are actively renting them in order to obtain a return on their investment. Further, it suggests that a tax on vacant properties, regardless of who imposes it, will neither increase the supply of purpose-built rental apartments nor boost the volume of homes available for sale.
Despite the fact that the condo rental vacancy rate is at a seven-year low and the vacancy rate for rental apartments in the Toronto CMA at 1.4% is at a five-year low, median rents have risen on average by just 1% above the rate of inflation over the comparable period.
Given this negligible real rate of return under government imposed rate caps over the past ten years, it is not surprising that the supply of purpose-built rental apartments has essentially stagnated over the past ten years.
Further, as noted by the Royal Bank Economic Research team, "imposing rent controls on condo rental apartments is likely to stem interest from condo investors who have been the prime source of rental units in recent decades".
In the process of focussing on the impact of a small percentage of foreign buyers on housing demand in the GGH, the government appears to have overlooked two key factors which together have contributed to the recent rapid escalation in house prices across the entire Greater Golden Horseshoe.
First, over the past year the region has experienced an inflow of individuals from outside the country and from other provinces totalling just under 150,000. Second, as highlighted in a recent research paper published by Ryerson University's Centre for Urban Research and Land Development (where as a point of disclosure, the author of this article is a Research Fellow), the growth plan adopted by the provincial government ten years ago has simultaneously encouraged the construction of apartments and discouraged the construction of single, semi and row (i.e., ground related) dwelling units.
While the above-noted record-low apartment vacancy rates indicate strong demand for multiple-unit dwellings, the rapid escalation in prices of existing single-family homes across the GGH clearly reflects a dearth of ground-related dwellings which the measures announced in the Fair Housing Plan do not address in a serious fashion.